Case Scenario:
AutoPart, an auto parts distributor, has a large warehouse in the Chicago region and is using truckloads (TLs) for inbound shipping. TL shipping costs $800 per truck plus $100 per pickup. A truck can carry up to 1,200 units. AutoPart incurs a fixed cost of $100 for each order placed with a supplier. Thus, an order with three distinct suppliers incurs an ordering cost of $300. Each unit costs $50 and AutoPart uses a holding cost of 20%. Product from each supplier has an annual demand of 3,000 units. Show detailed calculations/derivations for the questions below. (Hint: You do not need to know lead time.)
Q1. Suppose a separate truck is used for each supplier. Determine the order quantity. What is the time (in months) between orders? What are the total cost per supplier and total cost for three suppliers?
Q2. Suppose three suppliers are grouped together per truck. Determine the order quantity. What is the total cost for three suppliers? Find the increase or decrease in total cost due to the truck capacity.